Economic indicators are sources of data used in a macroeconomic scale to be able to interpret present and future investment potentials or to be able to evaluate and grasp the overall health of a particular economy and an individual’s financial state. One type of an economic indicator is consumer confidence, which is also the same as consumer sentiment. This post will talk about consumer confidence in details and why is it important.
What is consumer confidence?
Consumer confidence refers to the amount or level of spending consumers takes part in. This is a statistical measurement influenced by opinions of the consumers. It simply means that it is the feeling of an individual relative to his or her own present financial situation along with the general health of the economy and the potential for an economic growth.
When does consumer confidence affect the markets?
Consumer confidence affects the market as there are investors who depend on a dynamic consumer spending conditions. When making investment decisions, one of the many indicators needed to look at is this particular concept.
Where did consumer confidence originate?
It was during the mid-20th century when consumer sentiment or confidence was established as an economic concept. It has become as an indicator that can greatly influence both economic and public policy and the stock markets in a broad-spectrum.
At that time, when consumer sentiment was regarded to be less positive, the markets react by becoming bearish and vice versa.
How do you translate consumer confidence?
Just like in the olden times, a high level of consumer confidence can indicate that consumers, generally, feel good about their financial status and their ability to acquire and maintain their jobs. If consumer confidence is high, then consumers are more likely to spend the amount of money they have and such tend to increase proportional to their thinking. On the other note, if consumer confidence is low, then consumers are less likely to spend their money.
Why is consumer confidence important?
As mentioned before, consumer confidence measures the level of confidence consumers have towards the general health of the economy. It also reveals how confident the public is towards the stability of their employment as well as their income. Consumer confidence then dictates a person’s economic decisions such as spending.
This in turn affects the economy. As consumer confidence increases, the economy expands. When the opposite happens, such as when the economy contracts, it can mean that consumer confidence decreases.
Consumer confidence and / or sentiment data is important since it can be utilized by a number of individuals such as investors, retailers, banks, manufacturers and even various government agencies to be able to assess their actions and to better strategize. Moreover, consumer confidence (or sentiment) is also helpful to help people push forward even such as the concept of a self-fulfilling prophecy. However people must still be careful because if the contrary happens, it can greatly affect a person’s financial position.
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